Arrows do not appear at selected point on mesh
Disable "Adjust cage" option

Bender is capable of showing the result of some modifiers in edit mode. Subdivision surface &amp; Mesh deform are one of those. In addition there is also an option called Adjust edit cage to mesh result; from the Blender's reference manual page:


  This lets you grab the vertices as they lie in their new smoothed locations, rather than on the original mesh.


Despite this, the 3D manipulator will stay stiched to the un-adjusted cage of the mesh, creating the small gap you mentioned.



In your case the modifier causing that is the last: Mesh deform.